The Largest Oil Market Intervention In History?

While the figures quoted in Trump's tweet appear to be unrealistic,
there are now rumors of a global effort to cut production, with OPEC hosting a
meeting on Monday on the topic.

Friday,
April 3rd, 2020

Oil prices surged by the most on record in
percentage terms on Thursday, jumping by 25 percent. Prices were up again on
Friday during early trading. The jolt came from a tweet from President Trump
regarding a supposed 10-15 mb/d cut from Russia and Saudi Arabia. Riyadh did
indeed call for an emergency OPEC meeting, but the tweet raised a ton of questions.

Russia
denies, Saudi takes measured tone. Russia said that no
conversations occurred and that it had not agreed to anything. Saudi Arabia
called for a meeting but said that action on its part would depend on other
countries participating. One OPEC official said the tweet was "Trump talking
before his brain engages," according to the FT.

Diplomacy
picks up pace.While the numbers in Trump's tweet appeared
unrealistic, there is some degree of interest from all sides to collective
production cuts. It's not clear that the U.S. would offer anything â€“ Reuters reported that the U.S.
government would not ask domestic oil producers to cut output. In addition,
Russia has shown a reluctance to cut output, eyeing a decline in U.S. shale.
Indeed, oil prices at $25, or $20, or possibly even lower would impose
production cuts even without any formal governmental arrangement. Still, a new
round of negotiations could take place, possibly with U.S. involvement.

A
10 mb/d cut after all? By early Friday, there seemed to be
some momentum on negotiations. Bloomberg reported that Russia
was open to a global pact. At the time of this writing, OPEC was rumored to be exploring a scenario in
which Saudi cuts by 3 mb/d, Russia cuts by 1.5 mb/d, non-Saudi Gulf States cut
by 1.5 mb/d, and the U.S., Canada and Brazil cut by nearly 2 mb/d.

Alberta
open to cuts. "If we see an effort at a global reduction in
production, we would be open to further measures on our part," Alberta's
Premier Jason Kenney said. Alberta has
been suffering from sub-$5
oil.

Brent
physical trades at $10 discount. Physical Brent barrels are
trading at a
$10-per-barrel discount to Brent futures, a sign that the underlying physical
market is deeply oversupplied even as traders demonstrate optimism about the
potential for a production cut.

Whiting
Petroleum goes bankrupt, dishes out executive pay. Whiting Petroleum (NYSE: WLL) became the first major victim of the unfolding
collapse in oil prices, filing for bankruptcy this week. The board approved roughly $14.6
million in executive bonuses just days before the Chapter 11 filing.

Chevron
cancels contract in Venezuela. Chevron's (NYSE: CVX) joint
ventures with PDVSA cancelled service contracts in recent weeks, according to Reuters. A drop in
maintenance could lead to production declines.

China's
refiners increase processing. China's refineries have
started to increase processing,
with runs set to increase by 755,000 bpd in April, a 10 percent month-on-month
increase.

Schlumberger
to cut workforce.Schlumberger (NYSE: SLB)said that it would
implement widespread salary and job cuts.

BP
slashes spending 20 percent.BP (NYSE: BP)
said it would cut spending by 20 percent, including a 50 percent cut in U.S.
shale spending. "This may be the most brutal environment for oil and gas
businesses in decades," CEO Bernard Looney said in a statement.

Gas
inventories rise. Warmer-than-average temperatures along
with demand destruction have led to a spike in natural gas inventories in
Europe. "There's a chance we will see a collapse in prices in the U.S.," Francisco Blanch, head of global commodities and derivatives research at Bank
of America, told Bloomberg. "We are
going to be weak on the demand destruction related to the virus, but the real
issue is that we had a very warm winter and we are coming out with extreme high
inventories."

U.S.
DOE to allow SPR storage.After a plan to buy oil for the
U.S. SPR fell through, the Department of Energy is going to open up the SPR for
leased storage. There is roughly 77 million barrels of capacity
available.

Mnuchin
says oil industry won't get direct loans. In response to
pressure from Sen. Lisa Murkowski (R-AK), Sec. of Treasury Steven Mnuchin said that the oil
industry would be eligible for loans from the new program created by the
stimulus package, just like every other business, but that they wouldn't
receive direct loans from the government.

Trump
considers import tariffs on oil. The White House is reportedly considering
placing tariffs on imported oil as a way of throwing aid to U.S. oil producers.
The plan has met strenuous opposition from refiners and even the API, an oil
lobby group that some say reflects the interests of the oil majors. A group of
oil executives are set to meet with President Trump on Friday.

Shale
drillers hire Rick Perry. A group of shale drillers have
tapped former DOE Secretary Rick Perry to pressure
the Trump administration on protectionist measures, such as tariffs on imported
oil.

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